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September 24, 2015

VIA EMAIL - e-ORI@dol.gov

Office of Regulations and Interpretations

Employee Benefits Security Administration

Attn: Conflict of Interest Rule, Room N-5655

U.S. Department of Labor

200 Constitution Avenue NW

Washington, DC 20210

Re: RIN 1210-AB32

To Whom It May Concern:

On April 20, 2015, the US Department of Labor (the “DOL”) published its proposed amendment

to regulations defining “investment advice” for the purpose of determining who is a fiduciary, as

well as related proposed prohibited transaction exemptions and amendments to existing

prohibited transaction exemptions (collectively, the “Fiduciary Re-Proposal”). Farmers

Insurance (“Farmers”) and Farmers Financial Solutions, LLC (“FFS”) submitted a comment

letter on July 21, 2015 and Joe Wimpee, a Farmers Agent and registered representative of FFS,

provided testimony to the DOL on August 12, 2015. As conveyed in our comment letter and

testimony, we believe that our existing business model satisfies the DOL’s expressed goals of

ensuring that recommendations to retirement account holders are made in the best interest of the

customer and are free from conflicts of interest. Included in this comment letter are specific

comments to the Fiduciary Re-Proposal, in light of our unique business model. Further, we

believe that the amendments requested in this comment letter are necessary in order to permit us

to continue to provide Retirement Solutions (as defined below) services to working class and

middle income individuals, as well as small businesses, in accordance with the Farmers model.

Farmers’ Business

Farmers is an insurance company that offers property-casualty insurance products to individuals

and businesses. Farmers’ and its agents’ primary mission is to provide each customer with

insurance products suited to the customer’s particular needs (“Insurance Services”).

Secondarily, and ancillary to its Insurance Services, Farmers and its agents assist the customer in

building on the foundation of insurance protection to create emergency savings, college savings

and retirement savings, including savings in traditional and Roth individual retirement accounts

(“IRAs”) and other tax-qualified retirement accounts (“Retirement Solutions”). The combination

of loss protection through Insurance Services, savings and market-based returns leads to the

accumulation of wealth.

John Mueting

President, Farmers Financial Solutions

30801 Agoura Rd., Bldg. 1

Agoura Hills, CA 91301

Tel 818.584.0241
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Farmers Financial Solutions (FFS)

FFS is a registered broker dealer, owned by Farmers Insurance Exchanges, through which

Farmers offers its Retirement Solutions services. While Farmers has approximately 14,000

exclusive insurance agents, about 5,400 of these agents are registered representatives of FFS.

The financial products FFS has available to its customers in connection with its Retirement

Solutions include mutual funds, fixed and variable annuities, variable universal life insurance,

and 529 college savings plans. Generally, none of the investment or insurance products available

to FFS customers in connection with Retirement Solutions are sponsored or managed by

Farmers, FFS or any of their respective affiliates.1

No registered representative of FFS has discretionary authority to acquire or dispose of any

investment on behalf of a customer. Each customer of our Retirement Solutions services is

required to complete an information form which contains certain disclosures, including

information regarding direct and indirect compensation received by FFS, and requests certain

acknowledgements from the customer. Currently, FFS customers are not asked or required to

submit to mandatory arbitration as a dispute resolution mechanism.

The Typical Customer of Farmers and FFS

The majority of our customers are working class and middle income individuals. The remainder

of our customers are small businesses. Such customers typically have limited investable assets

and are not often served by traditional investment advisers, broker dealers and wealth

management companies.

Current Value Add Services to Customers

As noted above, Farmers’ primary line of business is to provide customers with Insurance

Services. The relationship established through the provision of Insurance Services enables the

Farmers agent to develop an understanding of a customer’s financial needs, financial goals,

investment horizon and risk tolerance. As our customers are typically working class and middle

income individuals, they often do not have adequate access to information and education about

investment products that will enable them to achieve savings and retirement goals. Furthermore,

such customers frequently do not have access to, or cannot afford, a financial adviser. FFS was

created to add value to customers of Farmers Insurance Services in an effort to deepen the

relationship between the agent and his or her customers. Accordingly, the bulk of the income of

a Farmers agent who is also a registered representative of FFS is generated by insurance

commissions from the Insurance Services. Generally, only a modest percentage of an agent’s

annual commissions relate to Retirement Solutions.

1 An affiliate, Farmers New World Life Insurance Company, issues variable annuities which are available to

customers of FFS. However, we are not seeking any relief in connection with our proprietary products.
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FFS does not charge fees or receive any direct compensation from its customers in connection

with providing Retirement Solutions. FFS receives indirect compensation from the investment

products, and the amount of the compensation is based on the amount of assets invested.

Currently, FFS shares a portion of the indirect compensation it receives with its registered

representatives. The indirect compensation received by a registered representative of FFS will

depend on the size of the account. Such commissions, in the aggregate, are typically a small part

of the agent’s overall compensation. Accordingly, the Farmers agents that are also registered

representatives of FFS are not incentivized primarily by the commissions received from

providing Retirement Solutions. Instead, the primary benefit of offering Retirement Solutions is

to provide customers with a much needed value-add service and thereby strengthen the agent’s

overall customer relationship.

Our Goal

Farmers and FFS strive to add value to our customers by providing Retirement Solutions services

in conjunction with Insurance Services. If FFS and its registered representatives are deemed to

be fiduciaries under the terms of the Fiduciary Re-Proposal, we would need to either (i)

discontinue our Retirement Solutions services to our customers or (ii) charge our customers

receiving Retirement Solutions a service fee in lieu of any indirect compensation we receive

from the investment products.

Our goal in seeking the changes set forth in this comment letter is to keep the cost to our

customers for Retirement Solutions low so that we can continue to serve working class and

middle income individuals, as well as small businesses. The current commission-based structure

enables us to do that. While the DOL intends to preserve flexibility to provide services under a

commission-based fee structure through the Best Interest Contract Exemption (“BICE”), as

currently proposed, this exemption is not an option for us. One concern, for example, relates to

the disclosure requirements proposed in BICE. FFS makes available to its customers a variety of

mutual funds sponsored by American Funds, BlackRock, Franklin Templeton, Principal Funds,

Voya and Oppenheimer, among others. If FFS is required to compile the disclosures and

maintain the website currently set forth as conditions in BICE, FFS’s costs will exceed the

amount that would be sustainable out of the net revenues generated by providing Retirement

Solutions. Another concern is that BICE does not apply to investment advice provided to small

businesses in connection with the creation of a participant-directed plan, such as a 401(k) plan.

Specific Comments on the Fiduciary Re-Proposal

We understand the DOL’s objective to establish strong, enforceable protections for consumers

and small businesses from the potential harm presented by overreaching financial advisers

pushing affiliated products. However, the Fiduciary Re-Proposal has cast a very broad net that

encompasses a wide range of services offered in connection with retirement products, including

services that may be offered under models, such as the Farmers model, that align the interests of

the service provider to the customer. Because the Retirement Solutions services offered by FFS

are ancillary to a larger Insurance Services relationship with the customer and Farmers has no

affiliation with the investment products made available to the customer, FFS and its registered

agents are incented to act in the best interest of the customer. Accordingly, we believe that the

services offered under the Farmers model do not need to be subjected to all of the same
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requirements proposed to address more conflicted service arrangements, particularly when such

requirements may jeopardize our ability to continue such services. In light of the foregoing, we

are proposing alternatives to the DOL which would allow us to continue to add value to our

customers through Retirement Solutions without increasing the cost to our customers. We see

two alternative ways to achieve this goal.

1. Create a Streamlined BICE for Ancillary Retirement Solutions

As proposed, BICE is designed for counterparty dealings with a participant or beneficiary

of an employee benefit plan subject to Title I of ERISA, the beneficial owner of an IRA or an inhouse fiduciary with authority to make investment decisions on behalf of a nonparticipant

directed employee benefit plan subject to Title I of ERISA with fewer than 100 participants

because such counterparty dealings are not covered by the counter party carve out included in the

Fiduciary Re-Proposal. The DOL explained that it believes this segment of the plan market

requires heightened protections afforded by imposing fiduciary status on persons who

recommend investments and transactions involving plan assets, even when such persons are

acting merely as salespersons or other counterparties. To the extent such persons are deemed

fiduciaries, a prohibited transaction exemption is needed to allow such persons to receive

compensation from the investments and products offered or recommended to this segment of the

plan market. The DOL proposed BICE as this prohibited transaction exemption.

In our case, no proprietary products are made available in connection with our Retirement

Solutions. Furthermore, our Retirement Solutions services are merely ancillary to our Insurance

Services. Accordingly, as explained above, we believe the FFS model does not present the types

of conflict of interest concerns that are targeted by the DOL. We propose a new, streamlined

BICE for ancillary Retirement Solutions (“Streamlined BICE”). In the Streamlined BICE, the

term “Retirement Investors” would include employee benefit plans and retirement accounts,

including IRAs and IRA owners, plan sponsors, participants or beneficiaries. The Streamlined

BICE would require a written contract between the Retirement Investor and the agent which

would be entered into prior to the execution of the transaction related to the recommendation.

The Streamlined BICE would include several new conditions that narrow the impacted field of

advisors, though it would still include some conditions from BICE. The Streamlined BICE

would serve to replace the proposed BICE for qualifying advisors. The conditions for using the

Streamlined BICE are as follows:

a. The conditions from BICE that would be included in a contract between the

Retirement Investor and the agent are as follows:

(i) The agent agrees that he or she is acting as a fiduciary under ERISA or

Section 4975 of the Internal Revenue Code, or both, with respect to the

Retirement Solutions services provided to the Retirement Investor; and

(ii) The agent agrees to act in the Best Interest (which, as defined in terms

consistent with BICE, means rendering Retirement Solutions services that

reflect the care, skill, prudence, and diligence under the circumstances

then prevailing that a prudent person would exercise based on the

investment objectives, risk tolerance, financial circumstances, and needs
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of the Retirement Investor, without regard to the financial or other

interests of the agent or any other party) of the Retirement Investor.

b. Additional conditions from BICE are as follows:

(i) The agent discloses any Material Conflicts of Interest (which, as defined

in terms consistent with BICE, means any situation in which the agent has

a financial interest that could affect the exercise of his or her best

judgment as a fiduciary in rendering Retirement Solutions services); and

(ii) The agent makes no misleading statements about the assets, fees, material

conflicts of interest or any other matters relevant to a Retirement

Investor’s investment decision.

c. The contract would not require the Retirement Investor to agree to mandatory

arbitration.

d. The registered broker dealer providing Retirement Solutions services to

Retirement Investors is part of a business enterprise that is primarily engaged in

the property-casualty insurance business and the agent is an exclusive agent of

such property-casualty insurance business.

e. The registered broker dealer, its affiliates and the applicable agent do not have

discretionary authority over the investment decisions of the Retirement Investor.

f. The agent fairly informs the Retirement Investor of the existence and nature of the

agent’s and the broker dealer’s financial interests in connection with the

Retirement Solutions services.

g. The broker dealer and the agent do not receive a fee or other compensation

directly from the Retirement Investor for the provision of Retirement Solutions

services.

h. The Retirement Solutions services are merely ancillary to the Insurance Services

provided to the Retirement Investor.

i. The financial products available in connection with the Retirement Solutions

services are not sponsored, issued or managed by the broker dealer or any of its

affiliates.

j. The fees received by the registered broker dealer and the agent from the

Retirement Solutions provided to a Retirement Investor must be reasonable under

the circumstances. The term “fees” means commissions and all other direct and

indirect compensation received by the registered broker dealer and the agent in

connection with providing the Retirement Solutions services to such Retirement

Investor.
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2. Revise the Proposed Amendments to PTE 84-24

In connection with the Fiduciary Re-Proposal, the DOL has proposed amendments to and

revocations from or Prohibited Transaction Exemption 84-24 (“PTE 84-24”). The proposed

revocation is to remove IRA owners from the exemptions provided by PTE 84-24 in connection

with the purchases of variable annuities and mutual fund shares. The DOL indicated that

exemptive relief for the compensation received in connection with such transactions should be

obtained through BICE.

In situations such as ours in which no proprietary products are made available in

connection with our Retirement Solutions, we urge the DOL to reinstate exemptive relief for

purchases by IRA owners of variable annuities and mutual fund shares which, in each case, are

not issued or offered by the agent or broker. Furthermore, we respectfully request that the

definition of “Mutual Fund Commission” be expanded to include any commission or sales load

paid by the non-proprietary investment company, including 12b-1 fees, revenue sharing

payments, administrative fees and marketing fees. Otherwise, extensive compliance and back

office procedures would need to be established to accommodate the new definition of “Mutual

Fund Commission.” Similarly, the definition of “Insurance Commission” should not exclude

revenue sharing payments, administrative fees and marketing fees from non-proprietary

products. Given that PTE 84-24, as proposed to be amended, would require the agent or broker

to act in the best interest of the Retirement Investor and would require the compensation received

by the agent or broker be reasonable, the Retirement Investor is already protected with respect to

fees. Excluding certain types of fees does not offer additional meaningful protection to the

Retirement Investor.

The specific conditions for PTE 84-24 which would apply to insurance companies

primarily engaged in the property-casualty insurance business and agents that are exclusive agent

of such property-casualty insurance companies and who do not provide proprietary products in

connection with Retirement Solutions would be as follows:

a. The agent acts in the Best Interest (which, as defined in terms consistent with

BICE, means rendering Retirement Solutions services that reflect the care, skill,

prudence, and diligence under the circumstances then prevailing that a prudent

person would exercise based on the investment objectives, risk tolerance,

financial circumstances, and needs of the Retirement Investor, without regard to

the financial or other interests of the agent or any other party) of the Retirement

Investor.

b. The agent discloses any Material Conflicts of Interest (which, as defined in terms

consistent with BICE, means any situation in which the agent has a financial

interest that could affect the exercise of his or her best judgment as a fiduciary in

rendering Retirement Solutions services).

c. The agent makes no misleading statements about the assets, fees, material

conflicts of interest or any other matters relevant to a Retirement Investor’s

investment decision.
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d. The Retirement Investor is not required to agree to mandatory arbitration.

e. The registered broker dealer providing Retirement Solutions services to

Retirement Investors is part of a business enterprise that is primarily engaged in

the property-casualty insurance business and the agent is an exclusive agent of

such property-casualty insurance business.

f. The registered broker dealer, its affiliates and the applicable agent do not have

discretionary authority over the investment decisions of the Retirement Investor.

g. The agent fairly informs the Retirement Investor of the existence and nature of the

agent’s and the broker dealer’s financial interests in connection with the

Retirement Solutions services.

h. The broker dealer and the agent do not receive a fee or other compensation

directly from the Retirement Investor for the provision of Retirement Solutions

services.

i. The Retirement Solutions services are merely ancillary to the Insurance Services

provided to the Retirement Investor.

j. The financial products available in connection with the Retirement Solutions

services are not sponsored, issued or managed by the broker dealer or any of its

affiliates.

k. The fees received by the registered broker dealer and the agent from the

Retirement Solutions provided to a Retirement Investor must be reasonable under

the circumstances. The term “fees” means commissions and all other direct and

indirect compensation received by the registered broker dealer and the agent in

connection with providing the Retirement Solutions to such Retirement Investor.

Again, the defined term “Retirement Investors” would include employee benefit plans

and retirement accounts, including IRAs and IRA owners, plan sponsors, participants or

beneficiaries. The proposed written contract between the Retirement Investor and the agent

which would be entered into prior to the execution of the transaction related to the

recommendation. The term “Mutual Fund Commission” would include any commission or sales

load paid by the non-proprietary investment company, including 12b-1 fees, revenue sharing

payments, administrative fees and marketing fees. Likewise, the term “Insurance Commission”

should be defined so as not to exclude revenue sharing payments, administrative fees and

marketing fees from non-proprietary products.
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We would like to express our appreciation for the opportunity to comment on the Fiduciary ReProposal. To discuss further, please contact Matt Gannon at (202) 585-3122 or Blaire Luciano at

(202) 585-3128.

Respectfully Submitted,

John Mueting

President of Farmers Financial Solutions